The Fine Art of Building New Credit
Two Sides to Credit Repair
There are two forces that influence your credit scores, the negative and the positive. Cleaning up negative information is our job. Building positive credit is all about you. Both are integral parts of a successful credit repair program.
100 Points for a Start
Seeing negative information get deleted is an exciting part of the credit repair process, and a clean report is a joy. But if you fail to build new credit, your scores are likely to languish needlessly. Want some incentive? Two new accounts opened subsequent to a period of bad credit can be worth 100 points within 6 months. Think about 100 points. Where would you like your scores to be in 6 months, at 600 or 700?
Now is the Time
The sooner you start, the sooner you reach your target. Time sure flies, doesn’t it? It may take 6 months for new accounts to deliver their credit repair payload. But 6 months will be gone before you know it. The sooner you start, the sooner you will be enjoying your new credit score. Just put it on your to-do list and make it happen.
Open the Right Accounts
You want the biggest bang from your credit repair effort, and not all forms of credit will deliver the same benefits. FICO has very definite preferences. MasterCard and Visa are the best way to get where you are going. Forget about store cards. They may be easy to open, but you will be disappointed with the result, if not downright upset. If you are concerned about getting denied, go with secured cards.
The Best Secured Cards
Secured cards are the perfect credit repair tool. No stress. You will not get turned down. The best of the breed are cheap, easy to get, report to all three bureaus, and do not report as secured (who needs that?). Secured cards are collateralized. This means that you will open a small savings account for each card you get. Expect to need $300 for each card you open.
Balance Management for Success
The big caveat with new credit is to make your payments on time. Whatever you do, please make your payments on time. But your balances will have a giant influence on your scores too. Run your balance up and your scores will fall. Keep your balance down and your scores will rise. It is a see-saw. If you accidently (or out of necessity) max out a card, no worry. Just pay it back down and your scores will recover right away. No lasting harm done.
Timing and Your Scores
If you are planning an important purchase, such as an automobile or a home, you need to get your credit repair timing right to insure that your credit scores are as awesome as then can be when you need them. Do not get blindsided by bad timing. It can take up to three months for your creditors to report balance information to the credit bureaus. Plan ahead and get those balances down in advance. And keep them there until your deal is done.
Do Not Go to Zero
FICO is funny. High credit scores do not just reflect an on-time payment history. High scores reflect a pattern of borrowing and repayment that categorizes you as a skilled and active debtor. If you let your credit cards go to zero and sit in the drawer, soon FICO will start to depreciate the contribution they make to your scores. For credit repair success flex those credit muscles and use those cards.
6 Responses
I’ve opened 2 credit cards recently, one with a clothing store at the mall and one with a big department store. So far my scores have fallen off instead of going up. Should I still try secured cards? (do you guys answer these comments?)
Hi Michael, opening a store card usually comes with a discount on your initial purchase, which is a nice financial benefit. The credit repair benefit, unfortunately, is not so nice. For a variety of reasons, including ease of acquisition and unfavorable terms, FICO does not treat store cards the same way as mainstream credit cards, like MasterCard and Visa. In fact, they are more likely to hurt than help. But don’t panic! Open 2 secured cards as soon as you can afford to do so. Use them monthly, but restrict the use to only 20 percent of the total credit line. You will see dramatic credit score improvement within 6 months of the first reporting date. As far as your store cards are concerned, pay the balances down to zero when you can and leave them alone.
I’m not clear as to why I should open new credit cards. I have three open cards that I have had for more than 5 years. Should I still open new accounts, if so, why? Vincent
Hi Vincent, if you have a period of derogatory credit in your past, new accounts will give your FICO score a dramatic boost that your existing accounts will not provide, and is one of the most wonderfully effective credit repair strategies. The FICO logic behind this effect is that new accounts provide proof that you are still “in the game”, that you are capable of engaging responsibly in the entire borrowing process from application to responsible management. This is not to say that you should close the old accounts! Old is good and you should keep those accounts open. Keep in mind also that the new credit cards will take 6 months of reporting before they deliver their score benefit, but when they do it will be dramatic. This is NOT a good strategy if you need to raise your credit scores fast. But if you have the time, this method can easily add an extra 100 points to your score.
I already have a couple of credit cards including a debit MasterCard. Should i open new secured cards also. aren’t they thee same as prepaid cards or debit cards? I was told that some of these cards do not even get reported on your credit.
Hi Boo, I’m going to address your questions in reverse order. There are definitely types of accounts that do not get reported to the credit bureaus. Among those are debit cards and pre-paid cards (which are not the same as secured cards). Unless your debit card has a revolving credit line included it will not show up on your bureau reports. And although most secured cards get reported, there are many that do not report to all three bureaus. I do suggest that you get two new secured credit cards to rebuild your credit and improve your scores. And since the whole point of the exercise is to raise your scores, it is important that the cards you select report to all three bureaus. If you need help please give a call and we will help you find the right cards.